Tax Help Series – What is IRS Currently Not Collectible Status?

One tax help solution to an IRS problem is a status called Currently Not Collectible or Hardship Status. There’s another term for it, it’s called Status 53 or sometimes just 53 for short. That’s internal IRS lingo for currently not collectible. Sometimes it can be to your advantage to use that lingo, the Status 53 or just 53, sometimes it can be to your advantage to use that because it makes the IRS employee think that you know a little bit more than you actually do about the case.

So how can Currently Not Collectible actually be a solution to an IRS problem? In order to understand that fully, you really need to review or we need to review the collection statute of limitations. The IRS only has ten years from the date of the assessment of the tax to collect it, so, if you are able to stay in Currently Not Collectible Status, the status in which the IRS admits that they have no ability to collect from you because you have no ability to pay, if you can stay in that status for the duration of that ten years, then you win and they lose.

So, let’s think about it. Do people most people have ten years left of the collection statute? No, not really. Most people file a tax return on time or sort of roughly on time within a few years of being on time and then some time goes by before the IRS ever makes really any attempt to collect it. So in some cases particularly for older taxpayers who are now living on a fixed income, Currently Not Collectible could be a fantastic solution because maybe they’re just a few short years before the collection statute of limitation actually expire.

So how does the IRS decide to place you in Currently Not Collectible status?

Well, there’s a couple of different ways or actually there’s one way with a couple of different forms. The forms are the 433-F or the 433-A. The 433-F is a form that the IRS uses when you call him on the home, typically, when your dealing with something called the Automated Collection System or ACS. These are the lower level collection employees at the IRS and they have sometimes the ability to place your account into Currently Not Collectible status. They’re going to go ahead and go over things on the 433-F like your monthly income and your monthly allowable expenses. Keyword in that sentence was “allowable.”

Tax Help Tip: The IRS has tables for every county in the country and we have allowable expenses for things like housing, transportation, utilities and things like that. So if you’re allowable expenses and your monthly disposable income work out to where you have a negative income or an exceptionally small monthly income then they’ll go ahead and place your account into Currently Not Collectible Status.

The other form that I referenced was the form 433-A. Now, the form 433-A is typically used when you’re going to do an offer and compromise or when you have a revenue officer involved in your case. So what’s a revenue officer? A revenue officer is an employee at the IRS tasked with collecting income or tasked with collecting money from taxpayers with slightly more complicated situations or higher balances.

Tax Help Tip: They tend to go out for self-employed people and people that aren’t just wage earners or sometimes wage earners with high five-figure or high six-figure liabilities.

So a revenue officer will use a 433-A and it’s the same calculation basically that you use on a 433-F. They go ahead and locate your monthly revenue, your monthly income and they locate your monthly disposable income. If you can convince them that you have a negative or exceptionally small ability to pay on a monthly basis they’ll place you into Currently Not Collectible.

Another important tax help tip is to understand that there’s two different ways or two different durations for currently not collectible. It can last forever or until the statute expires or sometimes just for a short period of time, and the IRS doesn’t typically tells you which of these two durations are going to apply in your case. It’s kind of a hit or miss situation.

I would say that typically if you are living on a fixed income, this is semi permanent situation where they are going to go ahead and put an income target say, I don’t know, $40,000 a year or something. If your income doesn’t exceed $40,000 a year, and that’s a totally hypothetical number I just made up, but if your income doesn’t exceed this target then they’re not going to go ahead and yank you out of Currently Not Collectible and so the collection statute very well could expire. The other is where they’re just going to put you into Currently Not Collectible for a short period of time, usually a year or two and then they’re going to go ahead and do a review to see if you have an ability to pay in the future.

So, sometimes this can be a stop-gap measure just because it’s better not to pay sometimes than it is to pay or sometimes it can get you to the end of the collection statute limitations or sometimes it can get you to the point where you can actually file a bankruptcy.

If you want to hear more tax help, go ahead and give us a call at (888) 438-6474 and let’s set up a time to chat about your IRS problem.